The Impact of Wage Subsidies on Jobseekers' Outcomes and Firm Employment

Abstract

Wage subsidies are commonly used to assist disadvantaged jobseekers into employment. If effective they can contribute to reducing long-term benefit dependence. The study examines the impact of wage subsidies on assisted jobseekers and on the firms that employ them. It focuses on hiring subsidies granted over the period of January 2003 to December 2007 and outcomes up to December 2010, and draws on administrative and tax data held by Statistics New Zealand as part of the ‘Integrated Data Infrastructure’ prototype. Outcomes for assisted jobseekers are compared to those of comparable jobseekers using propensity matching methods. Similarly, propensity-matching is used to compare employment and earnings growth in firms that hire subsidised workers to growth in otherwise comparable firms. Overall we find that starting a subsidised job leads to significant employment and earning benefits for assisted jobseekers over several years. Subsidised workers are disproportionately hired into expanding firms, though we cannot determine whether the expansion would have occurred in the absence of the subsidy.